Company Law in China
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Company Law in China

Regulation of Business Organizations in a Socialist Market Economy

JiangYu Wang

This accessible book offer a comprehensive and critical introduction to the law on business organizations in the People’s Republic of China. The coverage focuses on the 2005-adopted PRC Company Law and the most recent legislative and regulatory developments in the company law landscape in China. The book covers a wide range of topics including the definitions of companies as compared with other forms of business organizations, incorporation, shareholders rights and legal remedies, corporate governance (including the fiduciary and other duties and liabilities of directors, supervisors and managers), corporate finance (including capital and shares offering), fundamental corporate changes (including mergers & acquisitions, and takeovers), and corporate liquidation and bankruptcy. In addition to presenting strong doctrinal analysis, the author also considers China’s unique social, political and economic contexts.
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Chapter 7: Fiduciary duties of directors, supervisors, and management executives

JiangYu Wang


In the sense that business companies in China share all the fundamental attributes of modern corporations, they also suffer from the same generic agency problems, subject, of course, to the strong characteristics produced by China's social, economic, and political milieu. The first agency problem involves the conflict between the shareholders and the directors and the hired managers. In many cases, SOEs in China face an ownership vacuum, or at least have the problem of 'strong managers, weak owner'. Private Chinese companies with separation of ownership and management are also plagued by the typical conflict between the firm's owners and its hired managers as the latter tend to pursue their personal interests. The second agency problem arises from 'the conflict between, on one hand, owners who possess the majority or controlling interest in the firm and, on the other hand, the minority or noncontrolling owners'. In SOEs under strong control of the government, which is also the largest shareholder, or in private companies dominated by majority shareholders, the state agency concerned or majority shareholder look toward the subsidiaries as cash cows for ready milking, necessarily at the expense of the minority shareholders who do not have access to corporate resources. As a partial solution to these agency problems, the 2005 Company Law, for the first time, officially unveils a framework of fiduciary duties 'resembling common law fiduciary duties'.

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